RESOLUTION TRUST CORPORATION
(RTC)

The Resolution Trust Corporation (RTC) was a temporary federal agency
established in 1989 to oversee the disposal of assets from failed savings
and loan (S&L) institutions. It was created by Congress in the wake
of the 1980s S&L crisis, in which hundreds of depository
institutions slipped into insolvency due to unsound banking practices. By
the time the RTC closed in December 1995, it had managed some 747
S&L closures and sell-offs valued at $460 billion in assets and
$225 billion in deposit liabilities. The RTC's work affected no
less than 25 million U.S. bank accounts, and while it was in operation, it
operated the federal government's fourth-largest off-site records
system.

The RTC functioned by becoming either a conservator or a receiver for an
insolvent S&L when the Office of Thrift Supervision (OTS)
determined the S&L was being operated unsoundly. If the RTC became
conservator, the S&L's financial condition was further
evaluated and was prepared for sale with designated
assets. The S&L's deposits and franchises were marketed to
prequalified bidders. Once the question of the failed S&L's
ownership was resolved, any remaining assets were held in receivership for
disposition and were sold according to RTC guidelines.

The RTC was established on 9 August 1989, when the Financial Institutions
Reform, Recovery and Enforcement Act (FIRREA) was signed into law. The law
provided for a major restructuring of the nation's thrift industry
and a reorganization of the federal agencies that oversaw the industry.
These reforms were necessary not only because of widespread insolvency in
the private sector, but also because the federal safety net, the Federal
Savings and Loan Insurance Corporation (FSLIC), had been bankrupted by the
crisis. The RTC's mission was threefold:

to sell defunct S&L assets to recoup as much money as possible

to minimize the impact of such transactions on local real estate and
financial markets

to maximize the availability and affordability of residential real
estate for low- and moderate-income individuals.

The RTC created the Small Investor Program (SIP) in June 1993 to meet the
needs of investors with moderate levels of investment capital. Under the
SIP, the RTC offered real estate assets on an individual basis for at
least 120 days, either through a broker, auction, or sealed bid sale.
Assets marketed under SIP were offered with an emphasis on geographic
focus to attract small investors who wanted to invest in their local
market.

Some select assets, including short-term loans, were held to maturity.
Loans were packaged and sold primarily through open outcry auctions,
sealed bid sales, or securitization. Individual sale was the strategy the
RTC uses to make real estate assets that were immediately deliverable upon
closing available to the public. The sealed bid sale method was often
selected when two or more parties were interested in the same asset or
when a sealed bid sale could effectively establish a high level of
competition that could command a higher sale price.

Open outcry auctions were used to sell REOs, loans, and furniture,
fixtures, and equipment (FF&E). Auctions provided the opportunity
to expose a large volume of assets to the marketplace and dispose of them
quickly. Minimum bids or reserve prices were usually established, although
the RTC also conducted absolute auctions or auctions with no minimum
reserve on some of its smaller assets and FF&E. Securitization is
the process of restructuring cash flows from pools of whole loans into
securities that are liquid assets.

Overall, the RTC was considered a successful mechanism for disposing of
assets and recovering funds for depositors, although critics claimed that
it didn't obtain particularly high returns on the assets it sold.
It also completed its work faster than anticipated. As the RTC's
work was drawing to a close, Congress passed the RTC Completion Act of
1993 to structure its dismantling. The act called for a transition of
records and responsibilities from the RTC to the
Federal Deposit Insurance Corporation
(FDIC), which assumed all of the RTC's assets and liabilities.